Nokia to acquire Alcatel-Lucent in $16.6-bn stock deal

Nokia, the once dominant mobile handset maker, today struck a deal to buy its smaller French rival Alcatel-Lucent SA in a €15.6 billion ($16.6 billion) in an all-stock deal to create the world's largest wireless infrastructure company.

A successful deal would be the biggest in the industry since at least 1999, when Lucent Technologies acquired Ascend Communications for about $21 billion, according to data compiled by Bloomberg.

Under the terms of the transaction that has been approved by the French government, Nokia will give Alcatel-Lucent shareholders 0.55 shares in the combined company for each stock they own, equivalent to around €4.12 based on Nokia's closing price yesterday.

The all-share transaction values Alcatel-Lucent at €15.6 billion on a fully diluted basis, corresponding to a fully diluted premium of 34 per cent, and a premium of 28 per cent on the average share price of Alcatel-Lucent for the previous three months and Nokia's closing share price of €7.77 on 13 April.

Alcatel-Lucent shareholders will hold 33.5 per cent of the combined company, while Nokia shareholders will hold the remaining 66.5 per cent if the public exchange offer is fully taken up.

The combined company will be called Nokia Corporation, with headquarters in Finland and a strong presence in France. Nokia's current chairman Risto Siilasmaa will be the chairman of Nokia Corporation while Nokia's CEO Rajeev Suri will be the CEO of the merged entity.

The combined company's board will have nine or ten members, including three members from Alcatel-Lucent, one of whom would serve as vice chairman.

As a result of the transaction Nokia would own Alcatel-Lucent's 50 per cent plus one stake in Alcatel-Lucent Shanghai Bell in China.

Nokia said that the combined company would target to achieve approximately €900 million of operating cost synergies annually by 2019 and around €200 million of reductions in interest expenses annually by 2017.

The proposed company would have had net sales of €25.9 billion, an operating profit of €2.3 billion, R&D investments of approximately €4.7 billion, and combined net cash of €7.4 billion as on 31 December 2014.

The deal is expected to close in the first half of 2016, the company said in a statement.

The potential deal would overtake industry giants Ericsson AB and Huawei Technologies in wireless-infrastructure revenue, according to researcher IDC.

With 1.3 billion mobile subscribers in China, the deal would strengthen Nokia's position in the country, and enable it to take on its two biggest competitors Verizon Communications and AT&T in the US.

Alcatel-Lucent is a leading IP networking, ultra-broadband access and cloud applications specialist. The company employs around 52,600 people, including 20,000 in R&D.

Its products and services are distributed all over the world - 44 per cent in North America, 20 per cent in Asia Pacific, 23 per cent in Europe and 13 per cent in the rest of world.

It operates in two segments, core networking segment including three business divisions - IP routing, IP transport and IP platforms - and in access segment including four business divisions - wireless, fixed access, licensing and managed services.

Alcatel-Lucent's mobile networks unit had 2014 revenue of €4.7 billion ($5 billion), which is 36-per cent of the company's total sales of €13.2 billion, and a successful deal would significantly boost Nokia's market share as it seeks to emerge the top network equipment supplier, as Ericsson and others diversify into media services.

Under chief executive Michel Combes, Alcatel-Lucent, which been trying to cut costs for years in a bid to better compete against China's Huawei Technologies and Sweden's Ericsson, has been trying to turn around the company which has posted losses nearly every year since its creation in 2006.

Alcatel-Lucent was formed through the $13.4 billion merger of Altacel SA with US-based Lucent Technologies.

Combes' Shift plan unveiled in June 2013 involved asset sales, 10,000 job cuts and cost savings of €250 million to €300 million.

Combes has sold assets worth €350 million under his Shift plan and had earlier said that he was on track to divest €1 billion worth of assets by the end of 2015.

A successful deal would help Nokia to better compete against China's Huawei Technologies and Sweden's Ericsson.

Alcatel and Nokia have held on-and-off talks for years prior to Nokia selling its mobile handset division in 2013 to Microsoft (See: Microsoft to acquire Nokia's handset business for $7.1 bn) The sale left the company to focus on its networks business.

A successful deal would be a strategic move by Nokia to strengthen its core business as Alcatel is stronger in North America, where Nokia has fledgling operations as well as being a leading global supplier of 4G and LTE mobile networks and related services.

"Nokia is pitted against China's Huawei and Sweden's Ericsson for contracts to supply next generation mobile equipment to network operators. Huawei and Ericsson are neck and neck in the race to become the telecoms equipment industry's biggest group by revenue," the Financial Times had earlier reported.

Nokia, once the pioneer and undisputed market leader in mobile phones and with a market value reaching €300 billion, was forced to sell its handset division after failing to compete with Apple and Samsung Electronics.

Suri, who took over as head of Nokia's networks unit in 2009 and became group CEO last year, has been able to revive the equipment business by axing more than 25,000 jobs and cutting costs elsewhere.

Under his leadership, Nokia's equipment unit has progressed and now generates around 85 percent of the company's annual revenue.

The company today confirmed market rumours that it is planning to sell its digital maps business known as HERE, valued at $2.1 billion and which generates less than 5 per cent of the company's annual sales. (Nokia seeks to sell maps business valued at $2.1 bn)

Post sale, Nokia will be left with networks division and licensing of patents business.

Despite antitrust concerns, the deal has the backing of the French government, which in the past has blocked overseas company buying French enterprises.

Commenting on the deal, Rajeev Suri, said, "Together, Alcatel-Lucent and Nokia intend to lead in next-generation network technology and services, with the scope to create seamless connectivity for people and things wherever they are.''

''We have hugely complementary technologies and the comprehensive portfolio necessary to enable the internet of things and transition to the cloud.  We will have a strong presence in every part of the world, including leading positions in the United States and China,'' he added.

"A combination of Nokia and Alcatel-Lucent will offer a unique opportunity to create a European champion and global leader in ultra-broadband, IP networking and cloud applications. I am proud that the joined forces of Nokia and Alcatel-Lucent are ready to accelerate our strategic vision, giving us the financial strength and critical scale needed to achieve our transformation and invest in and develop the next generation of network technology,'' said Michel Combes.